A year ago, the idea that bitcoins and cryptocurrencies would change the world was becoming a consensual opinion. Today, not so much.
The digital currency dropped below $ 4,000 last week. It is down more than 20% this month and 80% above $ 20,000 in January. Even other scrambled are collapsing.
Investors should have seen it coming. It was obvious.
There is a catalyst. People who follow digital tokens blame the hard bitcoin money fork. The smallest cryptocurrency of the same name is itself a bitcoin fork properly so called. But last week its developers and miners did not agree on the future of the digital token. So they decided to split into two competing cryptos, Bitcoin ABC and Bitcoin Satoshi's Vision.
If this seems like an intrinsically bad idea, it is. But again, investors should have seen it coming. Bitcoin is an open source project. Developers are free to duplicate the base code and create cryptocurrencies at will. And they have.
Until mid-November 2018, there are 2,502 cryptocurrencies, according to a list compiled on Investing.com. The cumulative market capitalization of these tokens is $ 142 billion, although it has been much higher.
Forgive me. I'm burying the damn. The problem with bitcoin and cryptocurrency in general is not bifurcation. It's that developers should not be able to do it create currency, to everyone.
I started writing in January that most cryptocurrencies were directed at zero. At the time it was not a popular position. I introduced my point of view on two things that every potential investor should have understood on digital coins "me too": there is no use case, and worse, they are unlikely to ever represent a deposit of value.
Keep in mind that many things can be a valuable store. Immediately I can think of collectables as art, baseball cards and signed memorabilia. Cryptocurrencies, at least the vast majority, will never be.
Bill Harris, former CEO of Paypal (PYPL), made headlines in August, when he wrote to recode; "All right, I'll say it: bitcoin is a scam." He claims that bitcoin is a scheme of pumps and landfills, in which the promoters push the value of dubious investments with exaggerated and implacable advertising towards the top. As the price increases and enthusiasm is greater, they give up everything, leaving unsuspecting investors holding useless titles.
I have made this case on the so-called alternative currencies. Investing in an initial supply of coins is like speculating in a highly promoted junior gold mining company where the prospect of finding real gold is nothing. There will be price volatility, many promises made, but in the end the investment is worthless. And it would always have been useless.
Harris is combining bitcoins, with alternative coins. This is a mistake, I think.
A pure digital currency is a good idea. It takes power from the central authority. The problem is oversupply. At the moment there are too many coins and too many charlatans.
This will pass. The Securities and Exchange Commission will summon the scammers. Their fake investment rooms will lead to a big showdown. Most ICOs will go to zero because they will not be able to pass the legitimate government supervision test.
This should leave bitcoin as the last standing digital currency. When that happens, I suppose it will eventually be more precious than today. However, there is much pain in the future when pump and landfill patterns are discovered and most coins collapse, exacerbating the mood for all their peers.
The game for investors is blockchain, the bitcoin cryptographic infrastructure. Ultimately, this digital register system will make its way into global supply chains and financial services because it systematically removes the mediocre trusted agents for verification.
Blockchain will make superfluous legions of accountants, lawyers and back office personnel.
IDC, a global information technology research company, sees blockchain as part of a larger digital transformation. The turn could be worth $ 7 trillion by 2022.
Microsoft (MSFT) was one of the first converts to the power of the blockchain. He started working with financial services start-ups in 2016. More recently, the Redmond software giant has challenged the scalability of its Azure cloud computing platform for accounting systems. The company is even working on a blockchain-as-a-service tool.
Shares exchanged at 20x direct revenue. The market capitalization has fallen to $ 790 billion in the last part of the technological sinking. The stock would be a great pick-up in the low $ 80.
To learn more about my advice at the intersection of communications and technology, check out my daily Strategic Advantage newsletter.
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